Other non-current financial assets

The changes during 2008 are as follows:

Investments in available-for-sale securities

The Company's investments in available-for-sale securities consist of investments in common stock of companies in various industries.

Major holdings in available-for-sale securities at December 31:

During 2008, the Company reduced its shareholding portfolio of available-for-sale securities by selling its interests in TSMC and D&M Holdings (D&M).

In 2007, Philips and TSMC jointly announced that the companies agreed to a multi-phased plan to facilitate an orderly exit by Philips from its shareholding in TSMC. The plan comprised a private sale transaction to long-term financial investors in Taiwan, the offering of shares through a public offering in the United States (in the form of American Depositary Shares) and the participation in stock repurchase programs initiated by TSMC. Under this agreement, the remaining 1,311 million TSMC shares were sold during 2008 in various transactions. Philips realized a gain of EUR 1,205 million on these transactions. In September 2008, Philips sold its remaining stake of approximately 13% in D&M, a Japanese company which manufactures audio-visual products. The gain on this transaction was EUR 20 million.The results on the TSMC and D&M transactions were recognized in Financial income and expenses.

During 2008, the Company increased its shareholding portfolio of available-for-sale securities, primarily as a result of the reclassification of LG Display from Investments in equity-accounted investees. Additionally shares of Pace Micro Technology (Pace) were received in conjunction with the divesture of our Set-Top Boxes and Connectivity Solutions activities.

Until March 2008, LG Display was presented as an equity-accounted investee. At the end of February 2008, Philips’ influence on LG Display's operating and financial policies including representation on the LG Display board, was reduced. Consequently, the 19.9% investment in LG Display was transferred from investments in equity-accounted investees to available-for-sale securities effective March 1, 2008, as Philips was no longer able to exercise significant influence. The investment in LG Display was reduced on March 12, 2008, when 24 million shares were sold in a capital market transaction to third parties. The EUR 158 million gain on this transaction was presented in Financial income and expense. At December 31, 2008, Philips owned 13.2% of LG Display’s share capital. At year-end the fair value based on the stock price of LG Display was EUR 448 million below the carrying value (fair value plus losses recognized in accumulated other comprehensive income). As this loss was considered significant, an impairment charge of EUR 448 million was recorded, by releasing the accumulated amounts under Other comprehensive income to Financial income and expense.

In April 2008, the Company obtained 64.5 million shares in Pace in exchange for the transfer of the Company’s Set-Top Boxes and Connectivity Solutions activities. Subsequently, 13.8 million shares were sold to third parties. The EUR 1 million loss on this transaction was presented under Financial income and expenses. As of December 31, 2008, Philips owns 17% of Pace’s share capital. At year-end the fair value based on the stock price of Pace was EUR 30 million below the carrying value (fair value plus losses recognized in accumulated other comprehensive income). As this loss was considered significant, an impairment charge of EUR 30 million was recorded, by releasing the accumulated amounts under Other comprehensive income to Financial income and expense.

Cost-method investments

The major cost-method investment as of December 31, 2008 is NXP, for an amount of EUR 255 million, of which the Company holds 19.8% of the common shares. The interest in NXP resulted from the sale of a majority stake in the Semiconductors division in September 2006. The Company’s stake in NXP is considered a non-core activity that is available for sale. Although the ultimate method of disposal and the precise market for non-listed shares are not clear, the disposal could be effected, for example, by way of a private transaction to strategic buyers or other financial parties, or via a public offering.The Company does not have any definitive plans to dispose of this interest.

NXP is a privately held company that is not quoted in an active market. NXP is carried at cost because the fair value cannot be reliably determined. The variability in the range of reasonable fair value estimates is significant and the probabilities of the various estimates within the range of reasonable inputs are not sufficiently reliable to determine a fair value. This is mainly due to the nature of the majority shareholders (private equity firms) and their potentially volatile investment and exit strategy, as well as to the nature and limited availability of the financial projections of NXP. Triggered by the deteriorating economic environment of the semiconductors industry in general and the weakening financial performance of NXP specifically, Philips performed impairment reviews on the carrying value of the investment in NXP in 2007 and 2008. During 2008, impairment charges were recognized in the amount of EUR 599 million, which are presented in Financial income and expenses.

In accordance with IAS 39, Financial Instruments: Recognition and Measurement, paragraph 66, if there is objective evidence that an impairment loss has been incurred for an unquoted equity investment carried at cost, the amount of the impairment loss is measured as the difference between the carrying amount of the investment and the present value of the estimated discounted future cash-flows.

The discounted future cash-flows have been estimated using various valuation techniques including multiplier calculations ('EBITDA multiples'), calculations based on the share price performance of a peer group of listed (semiconductor) companies and discounted cash-flow models based on unobservable inputs. The latter methodology involved estimates of revenues, expenses, capital spending and other costs, as well as a discount rate calculated based on the risk profile of the semiconductor industry. Taking into account certain market considerations and the range of estimated fair values, management determined that the best estimate of future cash-flows for the NXP investment was EUR 255 million at December 31, 2008. However, the resulting estimated discounted cash-flow amount used for impairment purposes represents an estimate; the actual cash-flows of this interest could materially differ from that estimate.

Another significant cost-method investment is that in TPO Displays Corp. (TPO). The Company obtained a 17.4% stake in TPO after the merger of MDS with TPO in 2006. The value of the investment at amortized cost is EUR 32 million, net of impairments. The Company performed impairment reviews of the TPO investment, which resulted in an impairment charge of EUR 71 million in 2008 and EUR 77 million in 2006, recognized in Financial income and expense. The impairment review in 2008 was triggered by the deteriorating economic environment of the connected displays industry and the weakening financial performance of TPO. The valuation was based on the 'over-the-counter' stock price of TPO, quoted on the Gre Tai Securities Market in Taiwan, a market with insufficient trading volumes and infrequent transactions.

Other

Included in the category 'other' are two convertible bonds, one issued by TPV Technology (TPV) and one issued by CBAY.

The convertible bond issued by TPV has a total fair value of EUR 142 million as at December 31, 2008. The bond has a maturity date of September 5, 2010, with an option to convert the bond into shares of TPV during the period September 5, 2008 until maturity.

The CBAY convertible bond, which may not be transferred to a third party before August 6, 2009, has a total fair value EUR 51 million as at December 31, 2008. The bond has a maturity date of August 6, 2015. Philips has an option to convert the bond into shares of CBAY before the maturity date or to sell the convertible bond to CBAY as of August 2012 onwards. CBAY also has options to redeem the convertible bonds in 2011, 2012 and 2013 at a certain percentage of the bond’s face value.